Aurelius Amps Up Pressure on Oi With Claims of Potential Default

Aurelius Capital Management LP is stepping up its fight with Oi SA, claiming a unit of the Brazilian phone giant will potentially be in default if it doesn’t fix breaches of its debt covenants by May 29. 

Capricorn Capital, a fund affiliated with Aurelius, said in a letter to Oi’s Portugal Telecom International Finance unit, or PTIF, on May 10 that the borrower “has failed to comply with” a number of clauses in the bond indenture, thus “resulting in a potential event of default.” In the same letter, a copy of which was obtained by Bloomberg News, Aurelius said the issuer has until May 29 before the default will be triggered and the bonds must be paid immediately.

Brian Schaffer, a spokesman for Aurelius at Prosek Partners, confirmed the contents of the document. He declined to comment further. Flavio Nicolay Guimaraes, a spokesman for Oi and its subsidiaries, didn’t immediately respond to e-mails and phone calls seeking comment.

The move comes after a judge in the Netherlands last week denied the investment fund’s request to block Oi from borrowing more money from its Dutch unit.

Aurelius said in April that it was concerned the money going to Oi SA would make it difficult for the Dutch unit to pay back PTIF when the debt comes due, said the person. Capricorn is arguing the Dutch unit was insolvent at the end of 2015 because the value of its debt exceeded the value of its assets, according to the document. The unit reported 5.86 billion euros in total assets and 5.87 billion euros in debt.

The New York-based investment fund earlier argued that Oi is unable to pay 2.8 billion euros ($3.2 billion) it borrowed from Oi Brasil Holdings Cooperatief UA, another one of its Dutch units, due to its worsening financial situation. Oi Brasil’s money mostly came from a loan the Dutch unit took out in June 2015 from PTIF, Aurelius said in a lawsuit filed in April. But a judge ruled against the fund, approving Oi’s right to borrow from its unit.

In Tuesday’s letter, Aurelius, which has previously sued borrowers such as the government of Argentina and Energy Future Holdings Corp., formerly TXU Corp., claimed that Oi and its subsidiary breached of number of clauses. It accused them of failing to comply with the legal and accounting requirements of the London Stock Exchange in 2014 and not sending the creditor’s trustee two copies of its balance sheet and profit and loss statement for 2014 in English.

The fund, which holds more than 5 percent of PTIF bonds with a face value of more than 100 million euros, also said in the letter that Citigroup Inc., the trustee of the noteholders of the 4.625 percent notes maturing in 2020, will issue a notice of default after May 29.

A representative for Citigroup didn’t immediately respond to requests for comment.

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